The answer to the above is easy. The harder to answer question would be:
Question 2: (on average) have you EVER made any money off the indexarb.com website?
why the hell futures lower then cash ???
- Thread starter thomfergu
- Start date
The answer to the above is easy. The harder to answer question would be:
Question 2: (on average) have you EVER made any money off the indexarb.com website?
When the market sees a less than rosey outlook for the future (no pun intended), we have the cash above the futs.
- Spydertrader
Getting warmer...
Fair value premium/discount is defined by the relationship between the interest cost of owning the index and the dividends paid. If the interest cost is higher than the dividend paid then there is a fair value premium. If the interest cost is lower than the dividend paid then there is a fair value discount. Due to transaction costs the index futures can trade a few ticks on either side of fair value without index arbitrage taking place.
"Question: have you once made any money off the indexarb.com website?"
not once. many times. but not from arb'ing.
by following premium divergences at different times during the day, it helps give a picture of what institutional money is doing, which helps support trade decisions (it has kept me out of losing trades and put me in winning trades). it is not a "signal" so to speak. it's a piece of the puzzle. just like watching bonds, sectors and bid/ask divergences.
not once. many times. but not from arb'ing.
by following premium divergences at different times during the day, it helps give a picture of what institutional money is doing, which helps support trade decisions (it has kept me out of losing trades and put me in winning trades). it is not a "signal" so to speak. it's a piece of the puzzle. just like watching bonds, sectors and bid/ask divergences.
That can be true on a brief transient basis, but itâs relatively quickly corrected by Arb Programs. Just because cash is higher than futures, does not mean that the outlook is less than rosy. It typically means that the dividends are higher than the cost of carry interest for the remainder of the contract.
The main reason an indexâs cash price can be higher than its futures price for the bulk of a trading day is that the fair value delta can be negative â i.e., a discount instead of a premium.
Futures price = cash price + fair value delta (where the delta can be negative)
Fair value delta = interest - dividends (where dividends can be greater than interest)
The interest is the carry cost for owning all the stocks from now until contract expiration. The appropriate short term rates from the yield curve are used, for example 3-month LIBOR. From the perspective of the futures contract holder, the interest is essentially gained because you donât have to borrow from your bank or broker to own all the securities.
The dividends are those that happen from now until contract expiration. From the perspective of the futures contract holder, the dividends are effectively lost because you own the futures contract instead of the securities.
The input values are adjusted proportionally for the remaining life of the 3-month contract.
Students
ig0r
Registered: Nov 2003
Posts: 956
05-01-08 03:38 PM
ig0r
Registered: Nov 2003
Posts: 956
05-01-08 03:38 PM
iQuote from igOr:[/i]
"Yes, I haven't been to this site in a while, I actually came to check and see if people still are profitable rebate trading stocks and noticed this thread -- felt that I could clear some things up about basis."
With the above quotes from igOr as your new teacher (to clear some things up), you had better start looking for a new teacher.
Basicly Spidertrader is correct.
Futures contract price is the SPECULATION/EXPECTATION of where the CASH PRICE WILL BE at that date in the future adjusted by costs of carry.
Also, whister is really helping you. You should pay attention to him. Don't spoon feed them too much whister.
Nutsneal
Aside from the cost to carry issues and the dividend stream issues its pretty simple. The Cash closes at 4:00 and the futures close at 4:15. Therefore the fair value for the next day, is not only based off the cost to carry but also the differential in the cash and futures close.
Forget Index arb you're not going to do it on any major index.
Try this one... How many stocks would you put in your replication basket for SnP500 index arb?
Forget Index arb you're not going to do it on any major index.
Try this one... How many stocks would you put in your replication basket for SnP500 index arb?